Economy performance

If we look at the external landscape, we find global economies have returned to the path of recovery. However, an escalating cycle of trade restrictions and retaliations by major economies may adversely impact growth. Economic activity across the world expanded close to 3% in 2017, making it the best year since the post-crash rebound of 2010, with markets stimulated by low inflation and accommodative monetary policies. Global financial conditions are likely to remain positive, while strong sentiment will help meet the robust demand, especially in investment and consumption.

Emerging markets in Asia continue to be the primary growth driver globally. However, uncertainties surrounding the business environment preclude optimism, as monetary easing in some countries, protective policies in developed nations and sluggish growth of the Chinese economy require close monitoring.

Despite challenges, India has demonstrated a resolve to achieve fiscal consolidation, complemented by wide-ranging and aggressive polices. The economy grew by 6.7% in the current fiscal, according to official estimates, compared to 7.1% in 2016-17. The year 2017 was marked by several key structural initiatives to ensure sustainable growth.

Setting a new benchmark

For BFL, the year gone by has been the best year on record, with the highest ever revenue and profitability. The consolidated income for 2017-18 stood at ₹8,358 crore, compared to ₹6,396 crore in 2016-17, a growth of 30.7%. PBT before exceptional item and exchange gain/(loss) stood at ₹1,347 crore vis-à-vis ₹839 crore in 2016-17, up 60.5%. On a standalone basis, total income surged from ₹3,865 crore in 2016-17 to ₹5,316 crore, a 37.5% increase. The performance has been driven by growth in all our segments across domestic and international markets.

On the balance sheet side, we have achieved the target of becoming a net debt free company. We have come a long way, from a relatively high-debt company to a cash-surplus company. As of March 31, 2018, our long-term debt/ equity (net of cash) stood at (0.06).

Strategic initiatives

The automotive industry is changing rapidly, and we can take advantage of opportunities in emerging areas like light weighting, electrification and new mobility concepts. Instead of being disrupted, we choose to be a part of this transformation. As a carefully crafted strategy, during the year, we fostered new partnerships that enables us to be a part of the change.

• Set up center for Light Weighting Technology (LWT), a fully-automated manufacturing facility in Andhra Pradesh. It will design and manufacture components for automotive and industrial applications, with commercial production expected to start in CY 2019
• Made a strategic investment of 45% stake in an Electric Vehicle (EV) start-up, Tork Motorcycles
• Opened a new research and development facility at MIRA Technology Park, UK, a leading automotive technology park and enterprise zone. The center will focus on the development of components and sub-systems for EVs

As we embark upon another transformation, I would like to take this opportunity to look back at what we accomplished so far; and address the key changes we are envisaging over the coming years. The preceding business transformations focused on technology up gradation, foraying into new sectors, widening of customer base, and more importantly, it resulted in building a sound knowledge base about metallurgy and metal forming. The transformations also created many ‘first-time-India’ milestones.

• 1990s: First Company to set up a 16,000T press in India
• Early 2000s: First Company to take the inorganic route in the manufacturing industry. The deal also provided us access to global oil and gas markets
• 2008: First Company to set up state-of-the-art capacity to address critical industrial sectors for forgings requirements across Oil & Gas, Construction & Mining, Railways, Aerospace and Defence
• 2012: First Company to address the global commodities/energy sector
• 2015: First Company to be part of aerospace global supply chain for critical components

Over the next few years, I expect the Company’s profile to undergo a steady change, driven by the following:

• Expanding product portfolio: Our new product pipeline, focused on transmission and driveline components, coupled with the investment in Nellore for setting up the Center for Light Weighting Technology, is expected to be a significant growth driver for the Company. More importantly, these initiatives will enable further diversification of the revenue stream, creating resilience during downturns.
• Opportunities in aerospace: This sector continues to be of importance, despite its slower than anticipated pace of progress. We are confident of growing this business through new product development and customer acquisitions. This business has a long gestation period and does take time before seeing any major momentum.
• Defence components: The business primarily focuses on supplying critical components to various defence agencies. With the Government’s enhanced focus on indigenization, we expect this business to grow at a healthy pace, driven by new products and systems development. We are making steady progress in the business, and we are encouraged by the response of the defence establishment.
• Defence equipment: As you may be already aware, our ambition is to become a full supplier of indigenously developed system for defence sector, leveraging the metallurgical and metal forming skillsets. Your Company has identified areas, key being artillery and land systems, where we believe an opportunity exists for new players. The 155mm/52-calibre Advanced Towed Artillery Gun System (ATAGS), jointly designed and developed by Bharat Forge along with Defence Research and Development Organisation (DRDO), set a world record during firing at Pokhran. Over the past few years, we have developed a host of products with a significant level of indigenization, with the capability to scale up very fast as soon as a major maiden order comes our way.

Advancing technology prowess

Smart manufacturing or Industry 4.0 is a key enabler that can help India realise the goals of ‘Make in India’. We have been proactively investing in machines and in enhancing people skills to realise Industry 4.0 standards.

We have adopted multiple measures (light-weighting of components, new product development focused on the entire powertrain, and emission solutions) to leverage emerging prospects arising from the technological upgradation required to meet the emission norm applicable from 2020.

Investing in people

The collective capabilities of our people have taken us far, and we will continue to invest in developing our team to sharpen their capabilities and introduce industry-leading practices. We are also working to instill a corporate culture that enables teams to take initiatives and explore new opportunities. It is only through consistent innovation and empowerment of our people that we will be able to sustain our leadership in our focus areas.

Progressing further

We will continue to build on our strong foundation and achievements, and take long and confident strides in our journey. We have strong growth models and a streamlined organization. We know where we are heading and, in great measure, how we are going to get there. We continue to enhance and implement our strategies to sequentially advance our operational framework for long-term shareholder value creation. As our initiatives bear fruit, allowing us to leverage new opportunities, we are convinced that we can deliver further profitable growth in 2019.

I take this opportunity to thank our shareholders for their continued trust and support. I would also like to thank all our stakeholders and bankers for supporting our vision and initiatives.

Regards,

Mr. B N Kalyani

Chairman & Managing Director